Chipmaker Marvell Technology's (MRVL 1.80%) year went from bad to worse after the company released its fiscal 2025 fourth-quarter results (for the quarter ended Feb. 1) on March 5, which was surprising as the company reported remarkably solid growth in its revenue and earnings and also issued terrific guidance for the current quarter.
Shares of Marvell have retreated more than 35% already in 2025, with the latest results triggering a big sell-off that sent the stock down nearly 20% in a single session. However, savvy investors would do well to focus on the bigger picture as Marvell's data center business received a tremendous boost in recent quarters thanks to the healthy demand for its artificial intelligence (AI) chips.
NASDAQ: MRVL
Key Data Points
Let's look at the reasons behind the latest sell-off before checking why this semiconductor stock is worth buying right now.
Marvell Technology's sell-off seems like an overreaction
Marvell's fiscal Q4 revenue increased an impressive 27% year over year to $1.82 billion, along with a 30% spike in its non-GAAP (adjusted) net income to $0.60 per share. Both numbers topped consensus estimates, and the outlook was also in line with Wall Street's expectations. The midpoint of Marvell's $1.88 billion revenue guidance points toward an outstanding year-over-year jump of 62%. However, that fell short of the higher end of analysts' expectations of $2 billion.
What's more, Marvell is expecting its bottom line to jump by 2.5x year over year in the current quarter to $0.61 per share. Such outstanding growth projections should have ideally sent Marvell stock higher, but it looks like the overall negative sentiment surrounding AI stocks of late led investors to press the panic button.
However, this overreaction to Marvell's earnings report is an opportunity for savvy investors to buy the stock. That's because the company seems to be in a solid position to sustain its outstanding levels of growth throughout the current fiscal year and beyond. Marvell has been benefiting big time from the fast-growing demand for application-specific integrated circuits (ASICs), which are being deployed in AI servers.
The company's custom AI processors are being used by tech giants such as Amazon, Microsoft, and Google, which are looking to reduce their reliance on Nvidia in a bid to bring down AI infrastructure costs. That's not surprising, as custom AI processors are considered to be more powerful, efficient, and cheaper at performing the specific task they have been designed for as compared to general-purpose computing chips, such as graphics cards.
The good part is that Marvell's AI customers have been ramping up their orders for the company's custom processors, as management pointed out on the latest earnings conference call. More importantly, Marvell expects its AI customers to continue purchasing its custom chips in high volumes going forward, driven by the launch of a new generation of processors. The company is also on track to start shipments to a new customer for its custom AI processors in 2026.
All this indicates that Marvell's data center business is likely to remain in solid shape after a terrific performance last quarter. Revenue from this segment increased an impressive 88% in fiscal 2025, with sales of AI chips significantly exceeding Marvell's estimate of $1.5 billion.
It is also worth noting that data centers produced 75% of the chipmaker's top line last quarter, which means this segment is set to move the needle in a bigger way.
Marvell says that it is on track to "significantly exceed our $2.5 billion target in fiscal 2026" from sales of AI chips. So, there is a good chance that the company's growth could eventually turn out to be better than what analysts are expecting.
Investors can expect outstanding gains from this AI stock
Marvell stock has taken a big beating this year, but it's clearly on track to clock eye-popping growth in the current quarter and beyond. Moreover, the size of the custom AI processor market and Marvell's share of this niche put the company in a solid position to sustain healthy levels of revenue and earnings growth.
The chipmaker finished the latest fiscal year with $1.57 per share in earnings. The following chart suggests that its bottom-line growth is set to take off over the next three fiscal years.
MRVL EPS Estimates for Current Fiscal Year data by YCharts
Assuming Marvell's earnings hit $4.65 per share after three years and it trades at 25 times earnings at that time, in line with the tech-laden Nasdaq-100 index's forward earnings multiple (using the index as a proxy for tech stocks), its stock price could hit $116. That would be a 70% jump from current levels. However, the possibility of Marvell delivering much stronger gains cannot be ruled out as the market could reward this AI stock with a premium valuation thanks to the stunning earnings growth that it is expected to clock.
